Wirecard Making The Headlines Again
29 March 2019
Wirecard Making The Headlines Again
Another day, another FT article on Wirecard and another rebuttal from the German payment processing company…
This time around, the FT raises concerns about the quality and even existence of some of Wirecard counterparties in countries such as the Philippines. Like many payment providers, the company uses and shares fees with third-party processors in countries where it lacks the appropriate licences or because it wants to outsource “sensitive” payments (mainly in the gambling and adult entertainment industries).
The business with third-party processors accounts for roughly half of Wirecard’s transaction volumes and the FT claims that some of these third-party providers which, officially have substantial business with Wirecard, appear on the ground as modest or even phony companies.
Needless to say, this new article confirms our cautious stance on Wirecard. Indeed, we were not totally convinced by the results of the “independent” investigation initiated by the company in Singapore as:
even if the company claimed there will be no material impact on its financials from this review, it also said that some employees may face criminal liability...
the investigation was conducted by lawyers hired by the company and it’s possible that the authorities will not be as complacent in their analysis of the situation,
there are still gray areas, specifically regarding the company’s assets in India which have also been the subject of very critical articles.
We currently have no position in Wirecard and consider that at the current EUR111 price, the risk/reward is still not attractive enough (around 50% upside to get to our fair value, but 60% downside in a worst-case scenario). But more importantly, this fair value and worst-case valuation could dramatically go down should accounting irregularities be confirmed and company’s financials need to be restated.
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